These days, most stocks are traded electronically.
The “bid” is the price an investor is willing to pay to buy a stock.
The “ask” is the price a seller wants for the stock he or she is selling.
When the bid and ask are matched, a trade results.
So, you’ve done your research, have a good feeling about a stock you want to buy, and are ready to place the trade. You select the stock, hit purchase and … what happens next exactly? In the movies, we see sweaty brokers crying out to each other on the floor of the New York Stock Exchange, red in the face and haggling over prices. The truth is that most of the stocks that we buy and sell are traded electronically. It provides an efficient (and less sweaty) supply and demand system.
The S&P 500 stands for Standard & Poor’s 500. It’s an index of 500 companies.
The S&P 500 is the main benchmark investors try to beat with their own stock portfolios.
The 500 stocks are updated regularly to represent the overall stock market.
The S&P 500 is another term you’ve probably seen online or on TV. It is short for Standard & Poor’s 500, and like the Dow, it is an index. The biggest difference between the two is that it’s made up of a lot more companies, 500 instead of 30.
Every April, our country rides a rollercoaster that starts with April Fool’s Day (“No taxes this year!”), soars through Income Tax Day (“Just kidding. They are due today.”), thrills us with Tax Refund Day (“Yay!”), and ends with that most stressful of family holidays–Arbor Day.
Of course, your tax refund isn’t free money. It’s money that you’ve overpaid to the government all year, which you now get back all in one lump sum. It’s tempting to splurge on big purchases like that Hutzler 571 banana slicer you’ve been thinking about all year (read the reviews), but it’s also a great opportunity to lay another golden brick down on your path to retirement.
If you’ve read our article about stock market returns, then you know how important investing early is to building wealth. For example, if your goal is to retire at age 65 with $1,000,000, and you start at age 45, you’ll need to invest about $16,500 per year, assuming you get the stock market’s historical rate of return around 9.8%. On the other hand, if you start at age 25, you need to invest only about $2,200 per year. There are, of course, no guarantees when it comes to annual returns — they could be higher or lower than 9.8% in any given year.
Do a favor for your future self and invest your tax refund now. Our guess is you won’t regret passing up the banana slicer.